Russian gas row worries Europe

Russia's image as a reliable international energy supplier became increasingly tarnished this week as a stand-off with Ukraine over gas prices disrupted supplies to Europe.

The Russian energy group Gazprom accused Ukraine of stealing about $25m worth of natural gas from transit supplies destined for other European countries, but most EU members blamed President Vladimir Putin for the crisis.

The commercial and political dispute that had engulfed the two countries and threatened long-term repercussions in Europe appeared to have been resolved on Wednesday, when the natural gas companies agreed to resume shipments to Ukraine under a complex price scheme.

"The talks ended successfully for Gazprom, and Gazprom is completely satisfied," said Alexei Miller, chief of the Russian company, as he and Naftogaz head Oleksiy Ivchenko announced a new five-year contract. "We reached a broad-based agreement on mutually acceptable terms," echoed Ivchenko.

The deal appeared to have a third winner: a Russian-Swiss trading company that will be the sole gas provider to Ukraine. OAO Gazprom will sell gas to the Rosukrenergo trading company for $230 per 1,000 cubic metres as of January 1, and Ukraine will buy gas from the company for $95. Moscow had earlier insisted that the Ukrainians should pay $230.

Rosukrenergo, which is jointly owned by Gazprom bank and a Swiss subsidiary of Austria's Raiffeisen Bank, can charge differing prices to Ukraine because it receives gas from Turkmenistan for a significantly lower price, said Gazprom spokesman Sergei Kupriyanov.

Mr Ivchenko said that the two companies had also agreed to raise the transit fee Gazprom pays to send its gas through Ukrainian pipelines from $1.09 to $1.60 per 1,000 cubic metres over 100km - a 47% rise. "Our relationship is shifting completely to a market basis," he said.

Although European countries including Austria, Slovakia and Hungary reported their gas supplies had returned to normal on Tuesday, the gas fight has reawakened European fears over Russia's reliability and potential for belligerence - criticism that comes as the country assumes the chairmanship of the G8 leading nations, a position it wants to use to boost its international prestige.

The EU welcomed Russia's face-saving deal with Ukraine, but said it still wanted to discuss the security of Europe's gas supplies, Austria's economy minister said. "We will still talk about security of gas supplies in Europe and also about the Russian situation," Martin Bartenstein told reporters before a meeting of EU member state energy experts.

The crisis between the two formerly friendly Soviet neighbours had escalated to resemble a full-scale cold war confrontation, with both sides accusing the other of acting for political gain. Ukraine was seeking a gradual transition to higher prices, but Moscow said it should pay up immediately.

Five EU countries confirmed on Monday that the quantity of gas arriving from Russia had fallen off dramatically. Germany, Austria, Poland, Hungary and Slovakia all reported a sharp drop in supplies, with Hungary saying its gas deliveries had gone down by 40%.

Looking on from Washington, the US state department said it was concerned that the gas stoppage created "insecurity in the energy sector in the region and raises serious questions about the use of energy to exert political pressure".

Russia took over the presidency of the G8 countries on January 1, and President Putin has promised to make energy security a cornerstone of his leadership.

Andrei Illarionov, a former senior economics adviser to the Kremlin, who resigned last week in protest over government attacks on political freedom, claimed that Gazprom's price of $50 per 1,000 cubic metres had been fixed for five years with Ukraine in 2004.